L4 | Intangible Assets

Question 1

What IAS is titled Intangible Assets?

Answer 1

IAS 38

Question 2

What IFRS is titled Business Combinations (purchased goodwill)?

Answer 2

IFRS 3

Question 3

What is an intangible asset?

Answer 3

A non-monetary asset without physical substance
Must also satisfy IASB definition of an asset:
- past event
- expectation of future economic benefits
- reliable measurement

Question 4

Give some examples of intangible assets/resources that could be capitalised

Answer 4

• computer software
• patents
• copyrights
• motion picture films
• licenses
• import quotas

Question 5

What is the recognition criteria for intangible assets?

Answer 5

Identifiable
- separable
- arises from contractual or other legal rights
Control
- power to obtain future economic benefits
Future economic benefits
- assessed using reasonable assumptions

If any condition not met, the expenditure must be written off to the income statement

Question 6

How are intangible assets measured initially?

Answer 6

at cost

All directly attributable expenditure included:
- purchase price (incl. purchase duties)
- employee costs
- professional fees and testing costs

Question 7

How are intangible assets subsequently measured?

Answer 7

Cost model
- cost less accumulated amortisation and impairment losses

Revaluation Model
- similar to IAS 16
- must apply to whole class of assets

Question 8

How is fair value of an asset determined?

Answer 8

by reference to an active market (unlikely for intangible assets - many of them are unique)

Question 9

When should you amortise an asset?

Answer 9

When it has a finite useful life

Question 10

What should amortisation reflect?

Answer 10

Amortisation (depreciation) method should reflect the pattern of future economic benefits expected to be consumed
If can’t be determined reliably, amortise by straight line method

Question 11

Where is the amortisation charge recognised?

Answer 11

Statement of Profit or Loss and Other Comprehensive Income, unless another IFRS requires that it be included in the cost of another asset.

Question 12

How often should the amortisation period be reviewed?

Answer 12

at least annually

Question 13

What is the link between impairment and intangible assets with finite useful lives?

Answer 13

the asset should be assessed for impairment in accordance with IAS 36 (impairment of assets)

Question 14

Should intangible assets with indefinite useful lives be amortised?

Answer 14

no

Question 15

How often should the useful life of an intangible asset with an indefinite useful life be reviewed?

Answer 15

Each reporting period to determine whether events and circumstances continue to support an indefinite useful life

Question 16

Does internal goodwill fall under internally generated intangible assets?

Answer 16

no, it has it’s own accounting standard (IFRS3)

Question 17

Where and what research costs should be charged?

Answer 17

All research costs to expense

Question 18

When must development be capitalised?

Answer 18

if (and only if) following apply:
- either use it or sell it and
- enterprise intends and is able to complete the intangible asset and
- reliable measurement of expenditure
- technical and commercial feasibility of the asset for sale or use
- future economic benefits
- sufficient resources to complete project

Question 19

When should sum of expenditure of development incurred be first capitalised?

Answer 19

from date intangible assets first meets all recognition criteria

Question 20

What can be capitalised? (applies to all internally generated intangibles)

Answer 20

Directly attributable rule applies
May capitalise
* Costs of materials
* Labour costs
* Fees to register legal rights
But not:
* Selling admin/general o/h/staff training

Question 21

What is (purchased) goodwill?

Answer 21

• the difference between purchase value of a business combination and
• net fair value of identifiable net assets, liabilities and contingent liabilities

Question 22

Is purchased goodwill an intangible asset?

Answer 22

Yes

Question 23

Is inherent (internally-generated) goodwill an intangible asset? Why?

Answer 23

No because of lack of individual identity and uncertainty in measurement

Question 24

What does IFRS 3 say about the treatment of goodwill (in terms of amortisation)?

Answer 24

IFRS 3 prohibits the amortisation of goodwill
Goodwill must be tested for impairment at least annually

Question 25

How is negative goodwill dealt with?

Answer 25

• if the acquirer’s interest in the net fair value of the acquired identifiable net assets exceeds the cost of the business combination
• that excess must be recognised immediately in the income statement as a gain (immediately written off against profit)

Question 26

When should an intangible asset be derecognised?

Answer 26

• on disposal; or
• when no future economic benefits are expected from its use or disposal

Question 27

How do we determine and recognise the gain or loss arising from the derecognition of an intangible asset?

Answer 27

• the difference between the net disposal proceeds, if any, and the carrying amount of an asset.
• it is recognised in profit or loss when the asset is derecognised
• gains shall not be classified as revenue

Question 28

What is the purpose of disclosures?

Answer 28

disclosures provide additional useful information that the entity may not have been able to communicate in the statements, such as surrounding the unique nature of R&D